Essays in Financial Economics

Abstract

This dissertation consists of three essay in financial economics. The first one studies risk management by firms engaging in international trade in Mexico. It finds that contrary to the rational benchmark, firms are less likely to continue their hedging program after incurring financial losses. The essay attributes this finding to narrow framing and shows that a net-worth channel is not consistent with this finding. The second essay introduces the notion of labor-market leverage. This implies that firms facing different labor markets face different wage dynamics and hence different cost dynamics. This creates a type of operating leverage. The essay shows that labor-market leverage amplifies shocks and uses the COVID-19 pandemic as an exogenous shock to show the effect of labor-market leverage on asset prices. The last chapter documents that institutions in Emerging Market Economies (EMEs) cycle between market-based ones and inward-oriented ones. It relates this to the finding by \cite{aguiar2007emerging} that in EMEs the trend is the cycle and makes the point that cyclical institution generates long-term growth dynamics that may induce cyclicality in the trend of the TFP process of EMEs.